<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark One)
(X) Quarterly Report Pursuant To Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the Quarterly Period
Ended September 30, 1996.
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the Transition Period to
Commission File Number 2-31438
NUKO Information Systems, Inc.
New York 16-0962874
(State of Other Jurisdiction or (I.R.S.Employer Identification No.)
Incorporation or Organization)
2391 Qume Drive, San Jose, California 95131
(Address of Principal Executive Offices) (Zip Code)
(408) 526-0288
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES ( X ) NO ( )
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest feasible date:
CLASSES Outstanding as of October 30, 1996
Common Stock ($0.001 par value) 10,450,690
<PAGE> 2
NUKO Information Systems, Inc.
Index to Quarterly Report on Form 10-QSB
For the Period Ended September 30, 1996
PART I FINANCIAL INFORMATION
PAGE NO.
Item 1 Financial Statements
Condensed Consolidated Balance Sheets September 30, 1996 and
December 31, 1995. 3
Condensed Consolidated Statement of Operations Three Months
Ended September 30, 1996 and 1995. 5
Condensed Consolidated Statement of Operations Nine Months
Ended September 30, 1996 and 1995. 6
Condensed Consolidated Statement of Cash Flows Nine Months
Ended September 30, 1996 and 1995. 7
Notes to Condensed Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II OTHER INFORMATION
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURE 16
2
<PAGE> 3
NUKO Information Systems, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(unaudited)
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,900,855 $11,255,820
Accounts receivable, trade 4,856,438 120,000
Receivables from
officers/directors 27,931 27,931
Share subscriptions
receivable including
interest of $30,567 at
December 31, 1995 - 341,967
Inventories, net 2,395,717 758,552
Other current assets 527,130 110,762
----------- -----------
Total Current Assets 10,708,071 12,615,032
Property and Equipment, net 2,411,140 459,497
Other Assets 8,270 253,340
----------- -----------
TOTAL ASSETS $13,127,481 $13,327,869
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
NUKO Information Systems, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (Cont'd.)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(unaudited)
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,961,766 $ 1,319,959
Accrued liabilities 704,666 108,719
Current portion -- capital lease obligation 130,277 95,273
------------ ------------
Total current liabilities 4,796,709 1,523,951
Senior notes - 325,000
Capital lease obligation, less current portion 65,250 101,686
------------ ------------
Total liabilities 4,861,959 1,950,637
SHAREHOLDERS' EQUITY:
Common stock, $0.001 par value, 20,000,000 shares
authorized: 10,450,690 shares issued and outstanding
at September 30, 1996; and 9,128,418 shares issued and
outstanding at December 31, 1995 10,450 9,128
Additional paid-in capital 20,605,857 15,741,718
Accumulated deficit (12,350,785) (4,373,614)
------------ ------------
Total shareholders' equity 8,265,522 11,377,232
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,127,481 $ 13,327,869
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
NUKO Information Systems, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
<S> <C> <C>
Net sales $ 4,298,744 $ 125,233
Cost and Expenses:
Cost of sales 2,919,178 68,746
Research and development 1,547,971 188,637
Selling, general and administrative expenses 2,323,148 419,882
------------- ------------
6,790,297 677,265
------------- ------------
Loss from operations (2,491,553) (552,032)
Other income, net 108,720 117
------------ ------------
Net loss $ (2,382,833) $ (551,915)
============ ============
Net loss per share ($ 0.23) ($ 0.22)
============ ============
Weighted average shares outstanding 10,424,015 2,529,126
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
NUKO Information Systems, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
--------------- ---------------
<S> <C> <C>
Net sales $ 6,936,024 $ 125,233
Cost and Expenses:
Cost of sales 4,451,408 68,746
Research and development 5,260,161 750,389
Selling, general and administrative expenses 5,519,170 667,053
------------ ------------
15,230,739 1,486,188
------------ ------------
Loss from operations (8,294,715) (1,360,955)
Other income (expense), net 317,545 (56,467)
------------ ------------
Net Loss $ (7,977,170) $ (1,417,422)
============ ============
Net loss per share ($ 0.84) ($ 0.57)
============ ============
Weighted average shares outstanding 9,455,315 2,500,706
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE> 7
NUKO Information Systems, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
--------------- -------------
<S> <C> <C>
Operating activities
Net cash used in operating activities $(10,848,308) $ (1,339,354)
Investing activities
Acquisitions of property and equipment (2,322,082) (62,365)
---------- ------------
Net cash used in investing activities (2,322,082) (62,365)
Financing activities
Issuance of common stock 4,851,861 4,000
Proceed (repayment) from notes payable and
long term debt (36,436) 1,300,000
---------- ------------
Net cash provided by
financing activities 4,815,425 1,304,000
Decrease in cash and cash equivalents (8,354,965) (97,719)
Cash and cash equivalents at beginning of period 11,255,820 85,807
---------- ------------
Cash and cash equivalents at end of period $ 2,900,855 $ (11,912)
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements
7
<PAGE> 8
NUKO Information Systems, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
The accompanying, condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included. Operating results
for the three months and nine months ended September 30, 1996 and 1995
are not necessarily indicative of the results that may be expected for
a full fiscal year. The December 31, 1995 condensed consolidated
balance sheet data was derived from the audited financial statements,
but does not include the disclosure required by generally accepted
accounting principles. For further information, refer to the financial
statements and accompanying footnotes for the year ended December 31,
1995, included in the Company's Form 10-KSB submission.
2. INVENTORIES
Inventories are started at the lower of cost (first-in, first-out) or
market. The components or inventory consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- --------------
<S> <C> <C>
Electronic parts and other components $ 293,365 $ 28,552
Work in progress 307,691 --
Finished Goods 1,794,661 730,000
---------- ----------
Net Inventory $2,395,717 $ 758,552
========== ==========
</TABLE>
3. INCOME TAXES
The provision for income taxes at the Company's effective tax rate
differed from income taxes at the statutory rate due to the increase in
deferred tax allowance and net operating losses not being benefited.
8
<PAGE> 9
NUKO Information Systems, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
4. ACCOUNTING FOR STOCK-BASED COMPENSATION
During October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123).
This accounting standard permits the use of either a fair
value based method or the current Accounting Principals Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB No. 25) when accounting for stock-based compensation
arrangements. Companies that do not follow the new fair value
based method will be required to disclose pro forma net income
and earnings per share computed as if the fair value based
method has been applied. The disclosure provisions of SFAS
No. 123 are effective for fiscal years beginning after
December 15, 1995. Management has elected the alternate
disclosure method provided by SFAS No. 123.
5. SUBSEQUENT EVENTS
Subsequent to quarter end the Company secured a $6 million dollar line
of credit with a bank.
9
<PAGE> 10
NUKO Information Systems, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially
from those anticipated as a result of certain factors, including those
set forth in Item 5 of this report and in the Company's Current Report
on Form 10-KSB.
NET SALES AND NET LOSS
Net sales for the third quarter are $4.3 million compared to $0.1
million for the same period in 1995. Sales for the nine month period
ended September 30, 1996 are $6.9 million compared to $0.1 million for
the same period in the prior year. Sales for the quarter included
shipment of the Company's Highlander products and the Company's OEM
products. Sales for the quarter and nine months ended September 30,
1996 increased primarily as a result of the introduction of and
acceptance by the Company's customers of both the Highlander product
and the Company's OEM products. The net loss for the quarter is $2.4
million or $0.23 per share, compared to a net loss of $0.6 million or
$0.22 per share for the same period in 1995. The net loss for the nine
month period ended September 30, 1996 is $8.0 million or $0.84 per
share compared to a loss of $1.4 million or $0.57 per share for the
same period in 1995. Net losses reflect the Company's continued
investment in research and development as well as adding personnel to
enable the Company to support the customer requirements.
COST OF SALES
Cost of sales for the third quarter of 1996 was $2.9 million compared
to $0.1 million for the same period in 1995. Cost of sales for the nine
month period ended September 30, 1996 was $4.5 million compared to $0.1
million for the same period in the prior year. The gross margin
resulting from the cost of sales as a percentage of net sales was 32%
for the quarter and 36% for the nine month period ended September 30,
1996.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expenses for the third quarter of 1996 were
$1.5 million compared to $0.2 million for the same period in 1995.
Research and development expenses for the nine month period ended
September 30, 1996 were $5.3 million compared to $0.8 million for the
same period in 1995. The increase in the current year reflects the
Company's commitment to invest in the development and enhancement of
its Highlander and other product lines.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the third quarter of
1996 were $2.3 million compared to $0.4 million for the same period in
1995. Expenses for the nine month period ended September 30, 1996 was
$5.5 million compared to $0.7 million for 1995. The expenses increased
as a result of adding marketing and other personnel is connected with
the introduction of the Highlander product.
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation (Cont'd.)
RECENT ACCOUNTING PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS No. 121), which requires the Company to review for
impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In certain situations, an impairment loss would be
recognized. SFAS No. 121 is effective for the Company's fiscal year
1996. The Company has studied the implications of the statement and
does not expect it to have a material impact on the Company's financial
condition or results of operations.
During October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123).
This accounting standard permits the use of either a fair
value based method or the current Accounting Principals Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB No. 25) when accounting for stock-based compensation
arrangements. Companies that do not follow the new fair value
based method will be required to disclose pro forma net income
and earnings per share computed as if the fair value based
method has been applied. The disclosure provisions of SFAS
No. 123 are effective for fiscal years beginning after
December 15, 1995. Management has elected the alternate
disclosure method provided by SFAS No. 123.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, which consist of investments in demand
deposits, commercial paper and U.S. Treasury obligations with
maturities of less than 90 days decreased approximately $8.4 million
during the nine month period ended September 30, 1996. In February,
1996, the Company completed the private placement of 822,500 shares of
common stock which generated approximately $3.8 million in proceeds,
net of associated fees, commission and expenses. The Company ended the
quarter with a cash and cash equivalent balance of $2.9 million
compared to a balance of $11.3 million at December 31, 1995.
During the period, which ended September 30, 1996, cash required for
research and development and other operating activities plus cash
required for capital equipment represented the majority of the
decrease. Subsequent to quarter end, the Company secured a $6 million
dollar line of credit with a bank.
Based on the current projections of operations, management believes
that cash and cash equivalents at September 30, 1996 plus the Company's
accounts receivable will be adequate to meet its capital requirements
in 1996. However, no assurance can be given that this will be the case.
The Company may from time to time seek to raise capital from additional
sources, including extension of its current lending facility and
additional public or private debt or equity financing. There can be no
assurance that, in the event additional financing is required, the
Company will be able to raise such financing on acceptable terms or at
all. In such event, the Company would consider appropriate financing
alternatives.
11
<PAGE> 12
Item 2.
OTHER FINANCIAL INFORMATION
The Company's backlog includes sales orders received by the Company
that have a scheduled delivery date prior to September 30, 1997. The
aggregate sales price of orders received and included in backlog was
approximately $3.5 million at September 30, 1996. The Company believes
the orders included in the backlog are firm orders and will be shipped
prior to September 30, 1997. However, some orders may be canceled by
the customer without penalty.
12
<PAGE> 13
NUKO Information Systems, Inc.
PART II OTHER INFORMATION
Item 5. Other Information
RISK FACTORS
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, readers of this
document, and any document referenced herein, are advised that
this document and documents referenced herein contain both
statements of historical facts and forward looking statements.
Forward looking statements are subject to certain risks and
uncertainties, which could cause actual results to differ
materially from those indicated by the forward looking
statements.
Ownership of the Company's common stock is subject to a number
of risks including the following: The Company's business is
directly impacted by capital spending and funding of the
Regional Bell Operating Companies and other major customers in
the telecommunications industry. The capital budgets of these
customers or potential customers is beyond the control of the
Company and can be impacted by numerous factors completely
unrelated to the performance, quality or price of the
Company's products. In recent years, the purchasing behavior
of the Company's customers has increasingly been characterized
by the use of large contracts with fewer suppliers. This trend
is expected to intensify and will contribute to the
variability of the Company's results. Such larger purchase
contracts typically involve longer negotiating cycles, require
dedication of substantial amounts of working capital and other
resources and, in general, require investments which may
substantially precede recognition of associated revenues.
Moreover, in return for larger, longer-term purchase
agreements, customers often demand more stringent acceptance
criteria which may also cause revenue recognition delays. For
example, customers that request product be priced based on
volume estimates of customer's future requirements, but the
failure of such customers to take delivery of product
comparable to volume anticipated, could result in lower
margins on product revenue.
The Company has to date sold its initial product only in
limited quantities primarily for use in development,
demonstration and testing of prototypes. Certain contracts may
relate to new technologies which may not have been previously
deployed on a large-scale commercial basis. The Company's
products are based on technologies that have not been widely
deployed and there can be no assurance that the Company will
be able to market successfully its initial products to
generate the increased revenues necessary to sustain full
scale commercial production or that the Company's products
will be well received when introduced into the marketplace on
a full commercial scale.
13
<PAGE> 14
NUKO Information Systems, Inc.
Item 5. Other Information
RISK FACTORS (Cont'd.)
The Company competes against many larger companies that have
significantly greater resources than the Company. There is no
assurance that the Company will be able to compete
successfully with such other companies. The Company, which has
an accumulated deficit of approximately $12.4 million as of
September 30, 1996, has never been profitable and may never
achieve profitability. The Company may require additional
capital and may not be able to raise such capital or may be
able to raise such capital only on unfavorable terms.
The ability of the Company to compete effectively depends on
its ability to attract and retain highly skilled key
employees. The loss of key personnel could have a material
adverse effect on the Company's business. The Company believes
that, as its requirements change in character, it will be
necessary to retain the services of additional, experienced
personnel. Competition for such personnel is intense and there
is no assurance that these people will be available when
required.
Since early 1994, the Company has been engaged in research and
development of its technologies, product design and
establishment of strategic alliances on which the Company
expects to depend for manufacturing, sales and distribution of
its products. The Company has not yet begun to generate
significant revenues from the commercialization of products.
Moreover, management of the Company has limited experience
with the distribution of technologically-complex products in
commercial quantities and there can be no assurance that the
Company will be able to make the necessary adaptations to
successfully move from the research and development stage to
full commercial production and distribution.
14
<PAGE> 15
NUKO Information Systems, Inc.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11.1 Calculation of Net Loss Per
Share
b) Reports on Form 8-K
1. Form 8-K/A was filed on August 16, 1996
to amend Form 8-K filed on August 23,
1996. The amendment rectified a
reportable condition identified by
Registrant's prior independent
accountants.
2. Form 8-K was filed on September 12, 1996
to report appointment by the Company of
independent accountant was accepted by
Coopers & Lybrand.
15
<PAGE> 16
NUKO Information Systems, Inc.
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
NUKO INFORMATION SYSTEMS, INC.
DATE: ___________________ By:___________________________
NAME: John H. Gorman
TITLE: Chief Financial Officer
16
<PAGE> 17
NUKO Information Systems, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
11.1 Calculation of Net Loss Per Share
27.1 Financial Data Schedule
</TABLE>
17
<PAGE> 1
NUKO Information Systems, Inc.
Exhibit 11.1 Calculation of Net Loss per Share for Three Month Period
Ended September 30
Earnings per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period.
Common equivalent shares result from the assumed exercise of
outstanding stock options that have a dilutive effect when applying the
treasury stock method.
<TABLE>
<CAPTION>
1996 1995
----------- ----------
PRIMARY LOSS PER SHARE
<S> <C> <C>
Net loss for period $ 2,382,833 $ 551,915
=========== ==========
Shares outstanding at the beginning 10,409,096 5,543,473
of the period
Weighted average effect of shares - -
issued during period
Weighted average effect of warrants 14,919 -
and options exercised in the period
Weighted average effect of share - -
subscriptions paid in the period
Weighted average effect of shares - -
issued for services
Weighted average effect of debt to - -
equity conversion
Weighted average effect of share - (3,014,347)
subscriptions (excluded due to anti-
dilutive effect)
----------- ----------
Weighted average shares outstanding 10,424,015 2,529,126
=========== ==========
Primary loss per share $ (0.23) $ (0.22)
=========== ==========
</TABLE>
There is no difference in the per share amounts computed under the
primary and the fully diluted basis.
<PAGE> 2
NUKO Information Systems, Inc.
Exhibit 11.1 Calculation of Net Loss per Share for Nine
Month Period Ended September 30
(Cont'd)
Earnings per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period.
Common equivalent shares result from the assumed exercise of
outstanding stock options that have a dilutive effect when applying the
treasury stock method.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
PRIMARY LOSS PER SHARE
<S> <C> <C>
Net loss for period $7,977,170 $1,417,422
===========================
Shares outstanding at the beginning 9,128,418 5,413,941
of the period
Weighted average effect of shares 701,987 73,634
issued during period
Weighted average effect of warrants 218,978 -
and options exercised in the period
Weighted average effect of share (594,068)- -
subscriptions paid in the period
Weighted average effect of shares - 16,801
issued for services
Weighted average effect of debt to - 10,677
equity conversion
Weighted average effect of share - (3,014,347)
subscriptions (excluded due to anti-
dilutive effect)
---------- ----------
Weighted average shares outstanding 9,455,315 2,500,706
===========================
Primary loss per share $ (0.84) $ (0.57)
===========================
</TABLE>
There is no difference in the per share amounts computed under the
primary and the fully diluted basis.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,900,855
<SECURITIES> 0
<RECEIVABLES> 4,856,438
<ALLOWANCES> 0
<INVENTORY> 2,395,717
<CURRENT-ASSETS> 10,708,071
<PP&E> 2,879,793
<DEPRECIATION> 468,653
<TOTAL-ASSETS> 13,127,481
<CURRENT-LIABILITIES> 4,796,709
<BONDS> 0
0
0
<COMMON> 10,450
<OTHER-SE> 20,605,857
<TOTAL-LIABILITY-AND-EQUITY> 13,127,481
<SALES> 6,936,024
<TOTAL-REVENUES> 6,936,024
<CGS> 4,451,408
<TOTAL-COSTS> 4,451,408
<OTHER-EXPENSES> 10,779,331
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,294,715)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,294,715)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,977,170)
<EPS-PRIMARY> (.84)
<EPS-DILUTED> (.84)
</TABLE>
